Continuing on a trend that began in March, San Diego median housing prices hit another high of approximately $575,000 in August. The number represents around a 9% increase over the year. The number is not an all time high when inflation is considered (2005 adjusted for inflation is the all time high) but it does represent the best upward trend for San Diego in about a decade. There are many reasons for this trend, and depending on who you ask, those reasons may not necessarily be all good.
Mortgage Lenders Loosening the Purse Strings
We can officially say that the terror of 2008 has been forgotten, especially In the high end real estate market. Metro real estate across the nation is on an upward trend. Markets such as Atlanta, Dallas and Nashville are experiencing a rise in total loans given and total amount loaned. San Diego is keeping pace with its high flying neighbors Los Angeles and San Francisco. Many of the lending institutions that hold court in LA and SF also do a great deal of business in San Diego, so it makes sense that purse strings would loosen in all markets at once.
Private lenders are providing more options with the full support of Fannie Mae and Freddie Mac. The revitalized government programs are changing some of their tactics to compensate for the fact that higher median prices means that buyers in San Diego will be taking out more jumbo loans. (Even first time homebuyers are finding themselves taking out loans above the traditional limit just to get into a starter home.) For instance, Fannie Mae recently raised its debt to income ratio cap to 50% from 45%. The government entity also did away with requirements that made buyers put at least 20% down and hold 12 months of mortgage payments in cash.
Pilot programs that are being cultivated through Fannie Mae, Freddie Mac and non-bank lender entities such as the Guild Mortgage of San Diego are proving initially successful. This particular program allows buyers to get into homes with less than 3% down, which is a good thing as long as the rest of the market reinforces stability around relatively high risk lending.
Many critics say that the behavior from lenders coincides with the 2008 crash. However, lenders are taking precautions to ensure there is no repeat of the Great Recession. First of all, credit scores of borrowers are held to a higher standard than in the past. Low down payment buyers must have higher reserves of cash to mitigate the risk that banks take in working with the Federal Housing Administration. Even with these extra protections, not all banking institutions are participating, most notably Bank of America. This is actually helpful for the market, because the banks that are participating are less likely to overburden themselves with loans that could go bad.
Supply and Demand
Overall, there are less homes available to buy on the market, which drives up the demand for the homes that are available. These homes are also segmented into higher income neighborhoods, which only drives up the interest in those particular homes. The total number of homes available is also trending downward according to the Greater San Diego Association of Realtors. As of April, there were only 4763 active San Diego home listings, and this number is expected to drop during the winter months of 2017.
Demands for homes in San Diego is also up because of the new construction that is taking place around the city and county markets. Keeping pace with markets such as Seattle and Los Angeles has encouraged real estate investors to consolidate resources into more one million-dollar neighborhoods than ever before. These houses are new, with modern infrastructure and aesthetics. Anyone who can get in on this market will have a new property without much need for maintenance for quite some time. Savvy real estate buyers understand this, and they are coming in droves to San Diego because of it.
The Second Housing Bubble (?) and Low Interest Rates
Although the Federal Reserve is looking into moving interest rates off of historic lows, they still remain relatively affordable for any buyer who can afford to get in the market. Experts believe that as long as low interest rates continue to persist, they can support rising housing prices in San Diego. Even if we are experiencing this rise in San Diego real estate inside of a bubble, the stability of interest rates will keep us from having another 2008.
In relation to rents and incomes, housing prices in San Diego are relatively expensive. This is the same condition that occurred during the housing crisis, and many real estate experts have noted this. However, the market in San Diego is not rising because of volume, as mentioned earlier. The difference between 2017 and 2008 is that the people moving into San Diego homes are high income, stable credit wielding individuals. They are somewhat shielded from fluctuations in the housing market because of the burgeoning economy in San Diego. Still Below the Inflation Adjusted Peak
The numbers for August look less impressive when inflation is fully considered. However, this may actually be a good thing for the market as well. The housing crisis of 2008 occurred partially because there were records being set every month with inflation adjustment included. In short, the rise was too quick. The slower rise of the 2017 market indicates more stability and the appropriate amount of caution being exercised by lenders and buyers alike.
San Diego homes are described as being "on the edge of affordability" for the average San Diego income. This, too, is a positive sign. The new houses that are being purchased are moving into the hands of people at the higher end of the income spectrum. As stated before, these are the people who usually have more economic stability in fluctuating markets.
Overall, things are looking good for San Diego. Buyers may still be interested in San Diego as a growth opportunity even though prices are hitting recent highs. San Diego is experiencing stability even though its market is statistically emulating 2008 in some ways. This is an excellent sign for people who are looking to get into real estate for personal stability or for commercial use.